What is the Certificate of Need (CON) in Your Transaction Worth?

Published by AHLA

Written by William Teague and Cody Taylor

A Certificate of Need (CON) is a permit granted by a state authorizing a health care facility to establish, modify, or construct certain health care institutions, and to initiate certain health care services. In essence, obtaining a CON is a prerequisite for health care facilities to receive state licensure. Without the CON and subsequent licensure, a facility would not be able to contract with payers, treat patients, or operate. In most instances, once the CON has been implemented (i.e., the proposed construction or modification is complete) and licensure granted, the CON is no longer a unique asset, but rather a component of the license. Therefore, a CON can be viewed as either a legal right that has not yet been implemented or as part of an entity’s license.

CON laws are intended to help curtail growth in health care costs by preventing unnecessary duplication and allowing coordinated planning of health care facilities and services. CON programs are not federally mandated. Currently, 35 states and the District of Columbia have some form of CON regulation (see figure 1). CON requirements and program complexities also vary from state to state. For example, Tennessee CON law covers 23 types of health care institutions, services, and related activities, (2) whereas Ohio CON law applies only to long term care facilities. (3) With so many states regulating health care facilities through CON laws, companies, attorneys, and consultants should be aware of how CON laws may affect a particular
transaction.

At the outset, it should be noted that most states place significant legal restrictions on the transferability of a CON. For example, Tennessee law prohibits the “sale, assignment, lease, conveyance, purchase, grant, donation, gift or any other direct or indirect transfer of any nature whatsoever of a certificate of need.”(4) While it is risky to make generalizations about CON rules across state lines, it is more likely than not that a CON cannot be freely sold or otherwise transferred as an independent asset, but rather be sold as part of the purchase of an entire organization/entity or after going through some regulatory process concerning the transfer.

Click to continue to the full Certificate of Need article.

This article is a part of the AHLA Healthcare Transactions Resource Guide.